Fannie Mae and Freddie Mac shareholders will be returning to the Supreme Court to challenge the conservatorship of the two government-sponsored enterprises (GSEs).
The conservatorship began in 2008 during the Great Recession, as a temporary measure to address the then-ongoing housing crash. When Congress created the Federal Housing Finance Agency (FHFA), which acts as the conservator of the GSEs, the intent was for conservatorship to be temporary. Four years later, however, with the GSEs and the economy on more stable footing, the government reneged. Instead, FHFA and the Treasury Department amended a series of stock-purchase agreements to direct the companies to begin returning nearly all their net worth above a “survival amount” back to the Treasury each quarter.
The private shareholders of the GSEs who had previously benefited from the government’s intervention were suddenly shut out of any earnings from their shares. Subsequently, they filed a series of lawsuits against the government.
In 2020, one of these lawsuits, Collins v. Yellen, challenged the conservatorship on a premise that the director of the FHFA, which manages the conservatorship, was unconstitutionally insulated from the president’s removal power. Although the Supreme Court ultimately agreed with the argument of the shareholders, and held that the FHFA’s leadership structure was unconstitutional, it was not the win the GSEs’ shareholders had wanted. The ruling also found that Congress had removed the federal courts jurisdiction to hear challenges to the agencies’ decision to administer the 2012 amendments.
Now, in Owl Creek Asia I, L.P. v. United States, the shareholders are challenging the constitutionality of the conservatorship based on the Fifth Amendment’s Takings Clause. The shareholders are arguing the decision to redirect the GSEs’ surpluses to Treasury instead of distributing dividends to shareholders has unconstitutionally deprived without any compensation.
The government is countering this argument by claiming the shareholders do not have standing to bring this claim because the only parties that are being harmed by the existing arrangement, if any, are the GSEs themselves.
The petition for writ of certiorari – which requests the right to be heard by the Supreme Court – was filed in May and is awaiting a decision.